Eurocombat Over Cross-Border EU Banking

Bundesbank President Axel Weber is an inescapably important figure in European finance given his post. At the same time, the EU has been accused of lording it over member countries to an extent that diminishes state sovereignty. The Financial Times now notes that Weber has criticized moves from the EU that aim to stabilize the banking crisis also raging there. Once more, it's a matter with collective EU versus individual member country implications.

You are probably familiar with the woes now besetting various Western European banks that have lent not-insignificant amounts via their Eastern European operations. With efforts to shore up these banks being made contingent on scaling down their Eastern European operations, Weber is becoming wary of these being classified as "foreign" rather than "domestic" in an ever-closer union sense. It's interesting stuff that certainly will have implications for the future of European economic integration:

Europe’s competition authorities risk throwing the continent’s economic integration into reverse with their response to the financial crisis, the head of Germany’s Bundesbank has warned in rare public criticism of Brussels.

In a Financial Times interview, Axel Weber said policymakers were “at a crossroads” and might harm Europe’s growth prospects if they insisted on making lenders withdraw from foreign markets and become more nationally focused. His warning comes as competition authorities decide what concessions banks will have to make in return for state aid. Commerzbank, Germany’s second largest lender, which has been offered €18.2bn of state aid, is in talks with the European Commission over remedies, which may include disposals of businesses in other EU countries.

The comments by Mr Weber – one of the most powerful figures in European banking – reflect his fears that the crisis in financial markets will set back the economic integration deemed essential for the eurozone to thrive. “Some of the demands coming out of the competition department of the Commission have been aimed at refocusing banks on their national credit and lending operations rather than fostering their pan-European endeavours,” Mr Weber said. “I find it surprising – to say the least – that European institutions view crossborder operations within the EU as foreign operations. For me, the euro area is the domestic economy.”

Neelie Kroes, competition commissioner, has insisted that if banks get state aid they must restructure to compensate for the anti-competitive distortions created. Mr Weber said these “side effects” were “more pronounced than was originally envisaged” and might deter banks from using government help. “If banks are forced to sell off profitable businesses . . . I think this creates a problem. Dealing with rescue operations in that way, the probability of a credit crunch in the euro area increases rather than decreases due to these restructuring conditions.”

Some national governments have also insisted banks become more domestically focused in return for state help. If banking did become more nationally focused “I think Europe would forgo a lot of its growth potential”, Mr Weber said.